Cherrytree Group LLC Blog

State, Federal Offsets Help Recover Costs In Tight Times

Many developers tend to think “traditional” when it comes to commercial real estate financing sources, resulting in a scramble to obtain the funds necessary to finance a project. Without knowledge of how to secure available federal and state tax credits specific to projects, developers unwittingly “leave money on the table.”

Tax credits allow a dollar-for-dollar offset against taxes due. As such, they act as a form of tax payment. Tax credits are not to be confused with a tax deduction, which reduces adjusted gross income and can lessen the tax due. Tax credit recipients can use the credit to offset taxes, or can sell the credit in order to gain income. Restrictions, limitations, recapture risk, compliance obligations and transferability of the tax credit are dependent on the type of tax credit issued.

A variety of tax credits exist, including those for historical remediation, low-income housing, renewable energy and brownfields projects.

Historic rehabilitation tax credits promote the rehabilitation of historic buildings by the private sector. This is one of the nations’ most successful and cost-effective community revitalization programs, as historic renovations – which are extremely expensive – may not otherwise be undertaken without this tax credit.

State and federal historical rehabilitation tax credits together can offset as much as 40 percent of a construction project’s budget and they can make or break the feasibility of resurrecting a building with significant community value. With these credits, preservation efforts are more economically appealing than replacement costs. Likewise, being designated as a historic place may increase property values, thereby enhancing the property’s economic bottom line.

The market for tax credits allows for the completion of often essential projects that might not otherwise see the light of day due to the difficulty of financing through traditional funding avenues.

It is important to note that the process of applying for, securing and monetizing tax credit awards is an information and document sensitive process which is enhanced by using a consultant, a broker or a syndicator, and at times a lawyer to complete the paperwork.

Energy Credit Revenue

There are two significant tax credits for renewable energy projects – investment tax credits (ITC) from capital investments in the technology and/or the facility that creates renewable energy; and renewable energy credits (RECs) that are generated as a result of the production of renewable energy.

ITCs amount to 30 percent of the project capital costs, whereas the REC formula is organic – for each megawatt hour of electricity a renewable energy project generates, the owner receives one REC. These RECs can then be sold, allowing the producer of the renewable energy to reap revenue from the credit.

RECs can be purchased from companies that supply power, natural gas, biomass, and energy products, or from any producer of renewable energy. This source of revenue subsidizes the operating costs of a renewable energy facility, which is necessary to allow said facilities to remain financially feasible. A REC is retired once it is sold, ensuring that the credit is used but once.

Increasingly, businesses are investing in RECs as a means to implement more eco-conscious practices. Purchasing RECs allows a company to support renewable energy development, even when it does not produce renewable energy and is not directly utilizing renewable energy for its consumption needs. RECs are designed to encourage the development and distribution of renewable energy technology and the production of renewable energy.

Recovering Cleanup Costs

Finally, mention needs to be made of the Massachusetts Brownfields Tax Credit. Although some commercial property owners will go out of their way to avoid brownfields sites, others recognize the benefits inherent in the brownfields tax credit, which is intended to encourage the reclamation of polluted property as well as to enhance economic growth by fostering the rehabilitation of abandoned properties.

If the property qualifies for the credit, costs related directly to the environmental clean-up – such as outlays to determine, contain or remove contamination – will apply toward the issuance of credit. By monetizing the credit, often a brownfields property owner that cannot or does not desire to use the tax credit can recover up to 50 percent of the eligible costs of cleaning up the site.

The tax credits outlined above illustrate a sound approach to attracting new investment and financial activity during a challenging economic climate.

For information on applying for selling or brokering any of the tax credits mentioned above, contact The Cherrytree Group.

www.thewarrengroup.com is the publisher of Banker & Tradesman

The Cherrytree Group has developed a streamlined procedure for getting their clients Brownfields Tax Credits. What is the Brownfields Tax Credit? Massachusetts General Laws forces developers or owners of a site that has environmental contamination to clean up that site. The law holds the current owner responsible for the cleanup costs.

However, if the issues were caused previous to your ownership, Brownfields Act absolves you the owner of the property, of the liability for cleanup, and gives you a tax credit of up to 50% of the eligible costs of cleaning up the site. What you do with the credits is up to you, take the credits on next years taxes, or monetize those credits by selling them for cash to a buyer.

Why use The Cherrytree Group?

We are able to sift through the all of the information, determine which costs are eligible for the credit and prepare and file the application to the DOR. There are three functions to applying for these credits:

1. securing tax credits
2. brokering the sale of the tax credits
3. closing on a tax credit purchase

The Cherrytree Group can perform all 3 of these functions. The benefit here is that the costs to the client is significantly less when we provide those services than if separate professionals were retained for each service.

By using The Cherrytree Group, you employ an accounting professional to work on analyzing the eligible costs, a legal professional to close on the tax credit purchase, and a developer to assist with, and advise on the cost and development issues.

The Cherrytree Group acts as a consultant and a syndicator, applying for and obtaining the Brownfield Tax Credit for you. We can also sell that tax credit for cash.  Please contact us.

The town of Stratford, CT has been awarded a $500,000 grant from the state for clean-up of the U.S. Baird Property, where a brewery is planned.

The Governor announced last week that the Connecticut Department of Economic and Community Development (DECD) has awarded more than $16 million in loans and grants for several brownfields projects throughout the state, including the Stratford project.

The Stratford grant would go toward a hazardous building materials report, remediation and abatement at the site, which is projected to cost a total of $574,000. The grant is pending state bond commission approval.

Two Roads Brewery Co. just purchased the site for $2.85 million.

Two Roads company co-founder Brad Hittle said it is expected that the brewery will create 15 new jobs within a year and 70 jobs overall.

"Our brewery tasting room will retain the manufacturing esthetic, with bridge cranes and booms being kept and old pictures of Stratford’s manufacturing might throughout.  We want to honor this proud history.”

The governor announced that Stratford had received the grant last Friday.

“Cleaning up Connecticut brownfields is an important component of our economic development agenda. These contaminated sites are a blight to their communities and significantly damper development and prosperity for adjacent sites,” Gov. Malloy said. “Investing in these redevelopment efforts is smart policy—we create jobs and thriving communities, expand our tax base, and clean up pollution in Connecticut.”

This round of awards includes $8.7 million in loans and $7.5 million in grants for projects encompassing commercial and industrial remediation and expansion; affordable, disabled, student, and workforce housing; train stations and transit oriented development; and mixed-use developments with hotel, residential and retail space. It is estimated the state funding will leverage over $300 million in additional private and public investment.

Funding will go directly to municipalities, businesses, developers and regional development agencies and can be used for environmental assessment, planning, design, remediation, demolition, construction and acquisition. The state also offers a third party liability protection program for eligible developers of brownfields.

“There is a renewed commitment for brownfield redevelopment in Connecticut, and DECD is leading the way,” DECD Commissioner Catherine Smith said. “In the last six months alone, we’ve gotten more than $33 million in brownfield funding to our cities and towns and other parties that are helping to capitalize on the economic potential of these sites. Cleaning up these sites so they are ready for redevelopment is vital to our efforts to spur economic activity and make our communities more vibrant and accessible.”

The brewery is expected to open by September 2012.

Stratford Star